N. Hudson Mut. Bldg. & Loan Ass'n v. Childs

• Decision Date: 15 June 1892
• Parties: NORTH HUDSON MUT. BLDG. & LOAN ASS'N v. CHILDS ET AL.
• Court: Wisconsin Supreme Court

82 Wis. 460

52 N.W. 600

NORTH HUDSON MUT. BLDG. & LOAN ASS'N

v.CHILDS ET AL.

Supreme Court of Wisconsin.

June 15, 1892.

Appeal from circuit court, St. Croix county; E. B. BUNDY, Judge.

Action by the North Hudson Mutual Building & Loan Association against James H. Childs and C. Y. Denniston to recover damages for loss suffered through their gross neglect, mismanagement, and inattention to their duties as president and treasurer, respectively, of plaintiff. Judgment for plaintiff. Defendants appeal. Reversed.

The other facts fully appear in the following statement by PINNEY, J.:

This action was brought to recover against the defendants, Childs and Denniston, losses sustained, as it is alleged, by the plaintiff, to the amount of $28,000, by reason of gross neglect, mismanagement, and inattention to their duties while they were respectively president and treasurer of the plaintiff, and, as such, ex officio members of its board of directors. The complaint states that the plaintiff is, and has been since December 6, 1876, a corporation of this state for the sole purpose of accumulating funds to be loaned to its members to enable them to purchase real estate, build houses, satisfy mortgages, or make such other investment as the stockholders should deem proper; that its officers, to be elected by the stockholders at each annual meeting, are a president, vice president, treasurer, secretary, attorney, and seven directors, who, with the president, treasurer, and secretary, form a board of directors for the transaction and management of the affairs of the corporation; that the defendants, Childs and Denniston, were president and treasurer, as aforesaid, of the plaintiff from February, 1882, until February, 1887, and entered upon the discharge of their respective duties as such, and during that time were members of the board of directors of said corporation, and assumed to and did transact all the business of the said corporation without the authority, approval, or consent of its board of directors, and, after setting out in general terms their duty, to perform the duties of their said offices with ordinary care, prudence, and diligence; that it was particularly their duty to see to it and require that the secretary of the corporation should give bond for the faithful performance of his duties; that one F. H. Harvey, elected to that office in the year 1882, held and assumed to discharge its duties down to the year 1886, without having given any bond, or been required to give any, for the faithful performance of his duties, as required by the constitution and by-laws; all of which was through the gross negligence of the defendants,--the complaint sets forth 14 separate “causes of action” (so called) for losses sustained by the corporation, as therein specially stated, on account of the gross neglect, mismanagement, and inattention to duty of the defendants, and there was annexed to the complaint a bill of particulars thereof. Separate answers of the defendants admitted the existence of the plaintiff as a corporation, but denied each and every other allegation of the complaint. A trial by jury was waived, and the cause was tried before the court. The testimony, oral and documentary, is exceedingly voluminous, and that part of it relating to the losses sustained by the corporation consisted almost wholly of the testimony of an expert accountant, one Mr. Somers, who it appeared had had considerable experience in the management of the business affairs of similar corporations.

The finding of the court, in substance, was that the defendants were such president and treasurer, respectively, of the plaintiff, and ex officio members of its board of directors, as above stated. That the corporation had a code of by-laws in force during all the said time, a copy of which is embraced in the finding. It was provided therein, among other things, that the stock of the plaintiff should be issued at such times, and such separate series, in such amounts, and under such regulations, as the association might determine. Stockholders were to sign a writing pledging them to pay punctually monthly dues on their shares, and such fines and interest on loans as they might become liable for. If a stockholder neglected or refused to pay dues, interest, and fines, his shares might be declared forfeited by the board of directors, and the same should revert to the association, and the secretary should sell them at public auction, etc. Provisions for withdrawal from the corporation by consent of the board of directors were adopted, and the member withdrawing was entitled to receive the amount of monthly payments paid in on his shares, and any share of gain made by the association which, by any resolution of the board of directors, he might be entitled to receive. And provisions were made in like manner for any stockholder who had received loans to withdraw, in like manner, on paying the sum loaned. The loan of funds in the treasury was subject to be bid for at any meeting of the association, the person offering the highest premium to be the successful bidder, which was to be then paid by him, or deducted from the sum loaned. Loans might be made of the funds of the corporation to any stockholder not exceeding two thirds the amount actually paid in on each share, and might be secured by transfer of stock to the corporation as collateral security. In addition it was the duty of the board of directors to make investment of any funds of the corporation in such manner as in their opinion should be safe and most to the interests of the association, but no such loan was to be made without the consent of at least two thirds of the entire board of directors first obtained and expressed in writing. Loans were to be made, if the security was satisfactory, to the board of directors. Parties having loaned funds might prepay the same on such terms as the board of directors might determine. Section 4 of article 6 of the by-laws, for the release of mortgages, is as follows:

“Any member desiring to prepay his loan may do so at any time on the following terms: From the full amount or face of the loan there shall be deducted-- First, one eighth of the premium or bonus for each unexpired year of matured stock, and a pro rata amount for each fraction of a year, allowing eight years as the period for the maturity of the stock from its issue; second, the full amount of dues paid on his stock, together with fifty per cent. of the apparent profits to each one hundred dollars apparent value, or pro rata per cent. for any apparent value greater or less than one hundred dollars; and the stock on which the said loan is based shall then be canceled: provided, that one month's notice of such prepayment, or the payment of one month's dues and interest in advance, shall be required.”

“Explanation. The meaning and intent of the fifty per cent. apparent profits to each one hundred dollars of apparent value, and a pro rata per cent. for a greater or less sum, is that, to the first ten shares of apparent value five per cent. of the profits that help to compose it is allowed, and five per cent. additional to each additional ten dollars of apparent value,--that is, twenty dollars, ten per cent.; thirty dollars, fifteen per cent.; forty dollars, twenty per cent.; one hundred dollars, fifty per cent.; two hundred dollars, one hundred per cent. or all the profits; and a pro rata share for a greater or less value, taking the average rate of profits as the basis for an approximate estimate of any profits accruing since the last annual or semiannual estimate: provided, that the stock of any series may be used to pay loans with the profits as above stated, without regard to the series upon which the loan is made: and provided, further, that a part or the whole of any loan may be thus paid by shares, one share or more.”

The officers hereinbefore mentioned to be elected were required to be stockholders, and to be elected by such, and, with the president, vice president, treasurer, and secretary, formed a board of directors for the transaction and management of the affairs of the corporation, with power to adopt all rules and regulations necessary in the discharge of their duties, and for the government of the board, not inconsistent with the by-laws. The duties of the president, among other things, were to sign all certificates of stock and orders on the treasurer for the payment or appropriation of moneys ordered by the board of directors, and to perform all other duties appertaining to his office. It was the duty of the treasurer to receive all moneys as soon as paid into the association, pay all orders of the board of directors if signed by the president and attested by the secretary, have charge of all deeds, bonds, mortgages, contracts, and other securities belonging to the corporation, and keep a correct account of all moneys received and paid out, and make a monthly report to the association. The secretary was required to keep correct minutes of the proceedings of the stockholders and board of directors in a book or books kept for that purpose, to keep accurate accounts with the stockholders, attest certificates of stock and all orders drawn upon the treasurer for the payment or appropriation of moneys ordered by the board of directors, and to notify the directors of all stated or special meetings of the board; to keep the accounts, books, and papers of the corporation, except those in charge of the treasurer; and be prepared at all times to inform the stockholders of the state of the financial concerns of the association, and to perform such other duties as might be required of him, and to give bonds for the faithful performance of his duties in the sum of $1,000. Officers elected are to continue in office until their successors are appointed. A system of fines is provided for by article 9, and directors, for being absent from regular or special meetings, are subject to...